Weekly Market Assessment
A famous trader once said, "the market is designed to fool most of the people most of the time. Eventually the truth of why it moved as it did will emerge." Jesse Livermore-known to be one of the greatest stock traders of all time, said this in the early 1900's. On Wednesday, the day finally came that the Federal Reserve would begin to taper back on its $85 billion in asset purchases! The markets response, a 292 point rally in the Dow Jones, a 11% decline in the VIX(fear index) and an unaffected 10 Year Treasury Bond stood still at 2.89%, which should have sold off knowing the Government was slowly signaling its exit. What is frustrating is that every time the Fed mentioned the word "taper" prior to Wednesday, the market would sell off! So did the market do what it was designed to do in the eyes of Mr. Livermore?
I almost never thought this day would come and it should shed some light on how our economy is performing. Now, the Fed Funds Rate will remain low which is the interest rate at which banks actively trade balances held at the Federal Reserve. However, this is the first step in what could be many further reductions in one of the greatest experimental measures for monetary policy ever seen! The true test will come in future Fed meetings, where they will either decide to continue with the same reduction of $10 billion or more of asset purchases or increase it back to or above the original $85 billion. The market would hate to see a change of heart from the Federal Reserve, as they have now stuck their necks out on proving that they wont stay in the market forever, however only time will tell if this approach to stimulating the economy has led us out of one of the worst recessions since the Great Depression.
Through the Looking Glass: My Perspective on Stocks Reactions to Market Conditions
Next week will be a short week with little volume so i wont be looking for anything of the economic calender.
From the Trading Floor to the Option Pit: A quick look at whats on the trading desk
S&P 500 (SPX)- Sold a weekly Vertical "CALL" Spread at 1800/1805 as this seems to be a major level of resistance. After the initial drop before the Fed announcement my sell limit was hit and I exited the trade for an option gain of 41%.
Twitter (TWTR)- Sold a weekly Vertical "CALL" Spread at $60/61. After opening up on Monday at new highs TWTR sold off on more than double its average volume. It also received two downgrades and was down ~2% while the market rallied over 150+ points. Got out of the position for a 40% option gain.
Priceline (PCLN)- Sold a weekly Iron Condor at $1190/1195 and $1110/1105. Past 10 days this upper price range has acted as resistance. If we see a sell off the 1110/1105 is the 50 day moving average. We rallied huge on Wednesday and the upper leg of the Iron Condor went into the money. I tried to correct this by selling an additional Vertical "Call" Spread on Friday at the $1200/1205 but still had a loss of 52%